Siri Learns Mandarin, While Apple Falls in Love With China

Steve Jobs never paid much attention to China, but now Apple’s interest in the country could hardly be more obvious. In his short tenure at the top, Tim Cook has already embarked on a high-profile trip to China, talked about the importance of being a change agent for manufacturing in the country, and, as of yesterday, has overseen a keynote at the World Wide Developers Conference that placed the world’s largest Internet market on the same podium as the US.

These announcements are significant on a number of levels. For a start, and perhaps most importantly on a macro level, they will improve the Internet experience for Chinese consumers, which will further spur development of its still-growing Internet market. Secondly, they will allow Apple to build on their strong growth in the market. But most importantly, they confirm that Apple sees enormous potential in China, perhaps to the point where it may soon become the company’s biggest market.

You can expect all the noise around Apple and China to get only get louder. In April, Apple revealed that its revenue in the country reached $12.4 billion in the first half of the fiscal year – nearly as much as it made in the entirety of the last fiscal year, when it pulled in $13.3 billion. China is now Apple’s second biggest market, even though the iPhone is extraordinarily expensive here, and the iPad is still not officially available for sale in the country. Last October, Cook gave away his excitement, saying in an earnings call that for China the sky is the limit. “I’ve never seen so many people rise into the middle class who aspire to buy Apple products,” he said.

Despite the iPhone’s exorbitant price tag in China – it starts at about $630 – Chinese consumers are lining up to buy the device. One teenager even sold his own kidney to get his hands on it and an iPad. “The iPhone is a very aspirational item,” says Richard Robinson, the Beijing-based co-founder of social networking company Youlu and mobile games producer Kooky Panda. “It’s the same reason Starbucks has done well in China. Consumers are price sensitive, to a point. Then they will pay real money for status and quality.”

I wrote yesterday that the reported $4 billion valuation of local mobile company Xiaomi proves that Apple by no means has a lock-down on the high-spec smartphone market in China. And the smartphone competition in China is only getting more intense, with Baidu, Alibaba, Tencent, and others putting their own version of customized Android devices into the market.

But one thing is crucial to note: iOS is the only mobile platform that makes any money in China. It’s hard to pin down exactly what the mobile monetization split is between Android and iOS in China, but I’ve heard that as much as 90 percent of the revenue for mobile app developers comes from iOS devices, which is significant considering Android owns between 60 to 70 percent of the smartphone market. According to the ad research firm Guohe, 62 percent of iPhone users in China have bought at least one app before, while only about 23 percent of Android users have ever purchased an app.

The main reason for that is that Android’s Play store has still not officially opened in China, and third-party distributors such as GFan and Wandoujia offer only apps that are free of charge. The best monetization options for mobile, then, come mostly from games, which can sell in-app virtual items. That’s why gaming apps like RedAtoms top the list of mobile money-makers in the country.

But blunt economics also plays a role. People who are able to afford iPhones are more likely to be able to pay for apps and in-app purchases. Developers certainly take that into account when it comes time to pick a platform. “In order to make money for gaming in China, we do have to be on the iOS platform more than the Android platform,” says Xiaowen Xin, CTO of mobile social network 玩转四方 (the company doesn’t have an English name). “Android users probably will not pay for anything.”

Apple’s market opportunity in China, then, extends beyond just sales of hardware devices. So even if its stores get the occasional egging, it surely can’t help but lick its lips at its prospects in the Middle Kingdom. The love it gave China in the WWDC keynote confirms that and then double underlines it.